Democratising potential of regulation

Navroz K Dubash, Oct 6, 2005, 01.15am IST

The government is reportedly mulling a plan to purge 'inefficient' electricity regulators in favour of a new crop of 'skilled' and 'independent' regulators. This is a curious announcement. The Electricity Act, 2003 affords regulators considerable protection from arbitrary removal, precisely because they are intended to be independent. It is unclear how undermining regulatory authority in this way today will contribute to building it tomorrow.

Shorn of the technical niceties, most electricity observers agree that the goal of regulation is to depoliticise the sector. By this benchmark, regulation has failed. Delhi resident welfare associations have made it quite clear, for example, that they prefer to deal directly with Sheila Dikshit than with the Delhi electricity regulatory authority. Understandably, the government wishes to do something about this situation.

The news reports contain intriguing, and potentially positive, snippets about increasing transparency in the selection process and making regulators accountable to legislatures. However, from the little information available, the government's plan fails to rethink the model underlying depoliticised decision-making through regulation. Specifically, it focuses too much on who takes the decisions, and not enough on how decisions are made.

Currently, regulation is built around the infallible technocrat — the three wise men (and they are all men) model. Regulators are expected to be above political fray, and to dispense judgements based on impartial knowledge alone. In this model, the selection process is paramount, because regulatory legitimacy rests on the expertise, probity, and implacability of the regulator.

The three wise men model of politically detached regulation is flawed for three reasons. First, economic regulation is unavoidably political. Regulatory decisions authorise or deny huge profits, and affect the provision of an essential service for millions of voters. And this is not a problem unique to India. The director of the Public Utility Research Center (US) tells an anecdote about a state governor's first request to a newly appointed utilities regulator: don't do anything that would cost me the next election. Regulators are players, whether they like it or not.